The Biden Administration handed some renters a gift last week when it extended the moratorium on evictions during the Covid pandemic, keeping them in their homes even if they can't pay rent. But it's a temporary fix at best. The moratorium, imposed under a legally shaky rationale by the CDC, is already being challenged by property owners — and there's a good chance it will be struck down by the Supreme Court.
Meanwhile, the potential financial damage has not been averted. Too many tenants across the country are living in apartments with unpaid rent piling up, and landlords are facing their second straight year unable to evict people who don't pay them. The stakes are enormous: a recent study by professors at UCLA and USC estimate that tenants owe $3 billion in back rent in Los Angeles County alone. A recent survey from the Urban Institute noted that a total of 28 percent of landlords have deferred maintenance during the pandemic, the majority citing financial reasons for doing so. Further, 27 percent of tenants reported their maintenance requests were being ignored completely.
In theory, Washington has allocated billions of dollars for rent support for both tenants and the landlords hurt by the moratorium. But in practice that money isn’t going where it needs to go. As of the end of June, only 12 percent of the originally approved $25 billion in rental assistance had reached tenants in need. Still, even if all of the dollars allocated for rental assistance were currently in the hands of renters in need, it still won’t be enough. As Urban Institute researchers concluded that $50 billion is the minimum needed and a CityLab report suggests that it could be over $70 billion.
It didn't need to be this way. We knew more than a year ago that, at some point, eviction moratoria would end, and there likely wouldn’t be enough rental assistance to cover all back rent owed by tenants. We needed a long-term plan last summer, and sadly, we still need a plan to stabilize the rental market or face a devastating wave of evictions.
The question is, how can lawmakers in Washington dig out of an ever-widening hole?
The cleanest solution would be a government-financed loan program that would benefit both tenants and landlords. It needs to be federal. At this point, only Washington has the scale and scope to head off a crisis whose costs have the potential to tick into the tens of billions with far-reaching, long-term impacts on renters. It needs to provide landlords an immediate guarantee of the recovery of a substantial portion of back rent so that the rental market will restabilize. And a loan program, rather than additional rental assistance to tenants or landlords, solves several of the underlying issues: Tenants do owe back rent, and to pretend otherwise could invite moral hazard on a huge scale. It's politically more viable, in part, because directly footing a future bill that remains unknown would leave American taxpayers with additional Covid debt beyond the direct costs of the pandemic.
Based on my own 30-year career studying housing markets, uncertainty can cause more problems, particularly when one party might not receive all the money owed. Immediate action to develop a politically workable — and financially affordable — plan would include these components:
— A clear eligibility guideline for assistance, which could be modeled after current eligibility for rental assistance.
— A finance mechanism to pay for back rent. I recommend a 10-year low or no interest loan to the tenant. Because of the availability of rental assistance, most tenants would likely be required to pay nothing. However, some tenants would be required to pay a portion of the back rent based on income and rent thresholds.
— A guaranteed payment to the landlords of 80-100 percent of the back rent owed. This would provide certainty to landlords that they would receive a significant percentage of repayment immediately and could include incentives for the finance sector to refinance existing mortgages into payment friendly options. Judges could be required to order landlords to pursue this option in lieu of eviction for failure to pay rent.
To my knowledge, only the State of California considered such a plan, and it did not make it to a vote. At the time, there were two primary barriers to the bill passing: The first was that payment to the landlords came in the form of tax credits over 10 years, which landlord groups viewed as too long to wait. The second was the hope that federal rental assistance would be provided that would make state action unnecessary. But as we have seen, federal rental assistance has not been enough.
It is not too late to avert an eviction crisis. Many advocates are suggesting that we should give the eviction moratoria more time so that rental assistance that has been allocated will eventually reach the tenants. The track record to date suggests that this will take months — if not years — to get sorted out. It is no longer a viable option. Instead, Congress should act now to authorize this type of financing mechanism to avert any eviction for nonpayment of rent. The landlord could be awarded immediately a payment of at least 80 percent of the accrued rental liability, with the possibility of receiving all of the rent owed. The tenant would avert eviction and know that any rent they owe could be paid pack over 10 years with an affordable payment plan. (Lower income tenants would pay a smaller percentage of their owed back rent than those with higher incomes.) Importantly, this would provide certainty about what should be the next steps to stabilize the rental market and the financial situation of too many tenants and landlords.
This approach also has the chance to win over Republicans, who would likely bristle at additional rental assistance and are also getting pressure from various landlord groups that not enough is being done to help “mom and pop” landlords. While many Democrats might still prefer full rent forgiveness via federal rental assistance, this finance mechanism can turn into that for tenants that meet certain eligibility requirements. It is time for Washington to move beyond just two tools (rental assistance and eviction moratoria) for the rental market, and time to consider a plan that provides effective long-term stabilization for the rental market. Everyone agrees that an eviction crisis helps no one. Instead, we need to take decisive action to provide a clear workout plan to avert a needless eviction crisis.
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